The world is in the midst of a tectonic shift, with investors, shareholders, financial institutions, employees, governments and other stakeholders demanding that companies and organizations play a central role in creating a better future. Environmental, social and corporate governance (ESG) criteria are being used to identify organizations that will lead the charge in charting a path to sustainability and decarbonization.
Developing an ESG strategy provides an opportunity to reignite your organization’s vision and purpose, create a competitive advantage and increase your ability to access capital. These strategies allow you to create a roadmap for how you will contribute to a better future in a measurable way by reporting regularly on your progress and providing ongoing accountability to shareholders and other stakeholders.
What is ESG?
ESG is an assessment tool that relies on non-financial criteria to determine the positive and negative impacts of an organization on society and the environment. ESG metrics are now being used by the investment and financing communities to screen and rank potential investments and determine how capital will be allocated.
Why is ESG important?
Sustainable investors are increasingly considering ESG criteria in their investment analysis and portfolio construction. Investors at every level (institutional, retail, individual) are actively seeking out sustainable investments. Likewise, financial institutions are increasingly allocating funds specifically to companies and organizations that have robust ESG programs.
Currently in Canada, more than 60% of investment assets under management are sustainable, and that number is expected to rise significantly in the next few years. Similarly, the vast majority (~75%) of institutional investors report that they are actively considering divesting companies and industries that do not perform well from an ESG perspective. (2021 EY Global Institutional Investor Survey)
Although ESG criteria are most commonly applied to public companies, there is significant momentum growing in support of a complete ESG analysis of companies’ and organizations’ supply chains, both on the supply and customer sides. This trend is having far-reaching implications creating the expectation that all companies and organizations (public, private and governmental) across the value chain must be able to produce credible and rigorous ESG data and demonstrate continuous improvement from an ESG perspective.
In 2022, the Government of Canada announced that ESG disclosure on climate will become mandatory in Canada for certain sectors starting in 2024. Additionally, numerous jurisdictions around the globe (e.g. European Union, United Kingdom, United States) have either legislated mandatory ESG disclosure requirements, or are rapidly moving in that direction.
With the increasing emphasis on sustainable investing and financing, as well as the move toward mandatory ESG disclosure and the accompanying legal risk that will follow, it has never been more important for companies and organizations to have a well-defined ESG strategy that clearly identifies ESG risks and opportunities over short and long-term horizons.
ESG legal risks
With the implementation of mandatory ESG disclosure requirements, there is the potential for exposure to significant legal risk if ESG strategies are not developed and implemented properly. For instance, if ESG disclosure does not meet the mandatory disclosure requirements or is misleading, investigations, enforcement and litigation may be initiated against companies or organizations by governments, regulators, shareholders and other stakeholders.
The legal risks related to ESG disclosure, including sustainability reports and net zero goals, are increasing rapidly in Canada.
- Globally, more than 1,800 ESG related litigation claims have been filed, and that number is expected to increase exponentially over the next few years as a result of mandatory ESG disclosure requirements.
- In the United States, which has recently announced mandatory ESG disclosure, the US Securities and Exchange Commission has begun aggressively pursuing charges and enforcement against companies and investment advisers for misleading ESG disclosure.
- Mandatory ESG disclosure was recently announced in Canada. Most companies in Canada are not prepared for mandatory ESG disclosure, nor the significant legal risks and potential liability that come along with it.
- Learn more about company liability and personal liability
ESG Program and Strategy Development
We have experience advising clients across a broad range of sectors in developing their ESG strategies, and in particular in identifying ESG risks and opportunities. For companies and organizations that are relatively new to ESG or are just starting out on their ESG journey, we offer a customized and tailored ESG Strategy and Program Review performed by dedicated ESG lawyers and specialists.
This review typically consists of the following:
- ESG Current State / Baseline Assessment
- Client / Investor / Lender Expectation Analysis
- Peer Benchmarking Assessment
- ESG Framework Assessment & Metric Development
- Recommendations and Future Steps
This work can be conducted on a “legally privileged” basis which means that the work itself, as well as any discussions and deliverables will be protected by solicitor-client privilege and will not be disclosable to any external party without prior agreement.
Developing or refining your ESG strategy provides an opportunity to reignite your organization’s vision and purpose, create a competitive advantage and increase your ability to access capital and business opportunities. These strategies allow you to create a roadmap for how you will contribute to a better future and satisfy ESG disclosure requirements in a measurable way by reporting regularly on your progress and providing ongoing accountability to shareholders, clients and other stakeholders.
As part of our multi-disciplinary team, we have marketing specialists that can assist in developing ESG-related internal and external communication materials such as sustainability reports, investor presentations and videos.
We also have developed partnerships with complementary service providers to support your ESG journey. For example, should you require services relating to emissions or energy measurement, data collection or management, stakeholder engagement, analytics or reporting, we can recommend service providers who provide our clients with preferential and discounted rates.
ESG Legal Risk Assessment
Our ESG team consists of individuals who have hands on and in-house experience building ESG strategies in the energy, mining, nuclear and agriculture sectors, some of the most heavily scrutinized industries from an ESG perspective. Our team also has deep experience in environmental, social, governance and Indigenous matters, and we have team members with specific ESG training from both legal and technical perspectives.
Our ESG Legal Risk Assessments consist of the following:
- Review of ESG disclosure (e.g. sustainability report, net zero goal, investor/website materials), analysis of disclosure-specific legal risks and recommended opportunities for improvement
- Using advanced data and analytics, we also analyze a company’s broader ESG landscape and legal risks including:
- Prior, current and predicted ESG litigation
- Shareholder ESG activism, resolutions and trends
- Peer and competitor ESG reporting
- Investor and lender ESG expectations and requirements
- Media and stakeholder attention and concerns
- Environmental, health and safety, and financial/ securities regulatory compliance
ESG Policies, Procedures and Training
Centralized and thorough corporate policies and procedures addressing ESG issues are critical to managing ESG risks. Once developed, these policies and procedures provide guidance for consistent prioritization, management, and reporting on ESG issues. Policies and procedures and associated training materials can help ensure that employees are informed and engaged in your corporate values and priorities around ESG. Policies, procedures and training are also key tools in ensuring compliance with applicable laws and regulations.
Examples of ESG-related policies and procedures include:
- ESG Policy
- Business Code of Conduct
- Diversity, Equity and Inclusion (DEI) Policy
- Risk Management Policy
- Indigenous Engagement Policy
Fixed Costs: to take the guess work out of your legal budget, we use a fixed cost pricing model for all ESG service offerings.
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Environmental, social and corporate governance (ESG) criteria are being used to identify organizations that will lead the charge in charting a path to sustainability and decarbonization.
How far along is your organization on the integration of ESG into your business? We’ve developed this ESG checklist for organizations to assess their current ESG policies and strategies. Complete the checklist to determine your organization’s progress.
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